The most common before-purchase expense is a home inspection, which usually costs about $500 and is almost always paid upfront. The inspector prepares a written report about the home, so you’ll understand its current condition and any defects it might have.
This report is an out-of-pocket expense, regardless of whether you buy the home, says Jay Dacey, a mortgage broker at Metropolitan Financial Mortgage Co. in Minneapolis.
Additional inspections for wood-destroying insects, unhealthy molds, geological hazards, drainage problems or other issues can add additional pre-purchase costs. A real estate broker can refer you to inspectors who can tell you how much they charge.
Other before-purchase fees can include a credit check and appraisal of the home’s value. A credit check usually costs about $30. An appraisal costs at least several hundred of dollars or more, depending on the property’s value.
Some mortgage companies collect the credit check and appraisal fees upfront. Others will pay these fees for you, sometimes with the expectation of being reimbursed at closing.
This is the money from your savings that you give to the home’s seller. A mortgage pays the rest of the purchase price. It’s usually expressed as a percentage: On a $100,000 home, a $13,000 down payment would be 13%. The mortgage would be for the remaining $87,000.
Most low-down payment loans require mortgage insurance, which you’ll pay for monthly along with your mortgage payment. Mortgage insurance protects your lender if you don’t repay your loan.
“Incurring those costs over time means a lot of millennials are able to buy a home who otherwise wouldn’t or (who can) buy sooner,” says Karen Carr, a financial planner with Society of Grownups, a financial planning firm in Boston.
A VA loan, guaranteed by the U.S. Department of Veterans Affairs, doesn’t require a down payment or mortgage insurance, but borrowers pay a funding fee. The amount depends on your type of service, down payment percentage and other factors. In some cases, this fee can be waived. Read how VA loans offer good deals.
Be mindful that your budget as a first-time buyer might not stretch as far as you’d like.
“It’s a real wakeup call to a lot of (millennials) that where they want to be isn’t necessarily where they can afford to buy,” Rogoszinski says. “That opens up a whole other can of worms as far as: ‘Do I stay where I am or look for other options?'”
Don’t forget to include moving costs and new furniture in your homebuying budget, too.